The invasion on Ukraine began on 24 February earlier this year, when Russian military forces entered key cities, such as Berdyansk, Chernihiv, Kharkiv, Sumy, as well as the capital city of Kyiv. The occupation turned into a full-blown humanitarian crisis as Ukrainians fled their homes, fearing for their lives. In response, members of the European Union (EU), the US, the UK, and Switzerland imposed sanctions on Russia, affecting imports and exports of commodities. Other countries followed suit, including Australia, Canada, Japan, Singapore, South Korea, and Taiwan.
In this post, we will elaborate on the market conditions of commodities and lay out several key impacts to inform traders about the economic climate.
The Futures Market
Futures markets ensure that commodities producers and consumers limit the risk of losing money when prices change. However, the ongoing conflict has severely derailed production and commodities trading.
Russia and Ukraine are instrumental in providing commodities such as energy, fertilizer, and grains.
Ukraine supplies 10% of the global wheat export. It also supplies corn, barley, and sunflower seed oil.
Meanwhile, Russia is the world’s top exporter of wheat, pig iron, enriched uranium, natural gas, palladium, and nickel. It also exports coal, crude oil, platinum, and refined aluminum.
Together, these warring countries are dubbed Europe’s “breadbasket.”
While commodities trading is certainly affected, futures trading is not left untouched. Some traders and agricultural processors have avoided dealing with Russian products.
Hence, the outlook for commodity markets relies partially on how long the Russia-Ukraine conflict will last and how significant the disruptions to commodity flow will be.
Difficulties Accessing Export Areas
The Black Sea is the main channel for the transport of commodities as it connects parts of Europe and Asia. Its proximity to Ukraine makes it an ideal trade waterway. Before the crisis, Ukraine exported some 5 million metric tons (MT) of grain per month. At present, the country manages only 1 to 1.5 million MT.
Since the invasion, Russia’s forces advanced and took over Ukraine’s coastline, thereby arresting shipments. Key areas, such as Odesa, are blocked off by Russian fleets, effectively cutting off Ukraine from the sea.
Delayed Global Growth and Raised Inflation
Russia’s invasion is seen to result in a slowdown of global growth and a rise in inflation. According to research, the global growth risk is associated with Russia’s energy supply disruption. Monetary policy tightening, caused by considerable demand and a shrinking supply, would lead to inflation.
Food inflation is also an issue, as key agricultural regions in Ukraine have been occupied by Russian forces, while the besieged nation’s ports are sealed off. The sanctions imposed on Russia also restrict the exportation of commodities to other countries.
Commodity Prices Skyrocket
The restriction of supply from these two countries has, perhaps unsurprisingly, resulted in an increase in the price of commodities. This added to price hikes caused by a surge in demand during the onset of COVID-19 in 2020. This uptick has brought up food security issues and energy concerns, most particularly for developing countries or poor households in richer countries.
The increased prices of commodities can also be seen in products such as:
- Corn and wheat futures are seen to be highly volatile.
- Prices for wheat deliveries have increased up until the next few years, suggesting a decrease in supply. Futures markets see commodity prices remaining high even as 2022 draws to a close.
- Other commodities are such as fertilizer and energy (natural gas, crude oil, coal) are all impacted by the fluctuations in prices.
How Futures Traders Can Survive The Ongoing Crisis – And Still Win
Futures trading is interdependent on commodities trading. In these times of uncertainty, trading with a broker you can trust is of the utmost importance.
Be assured of quality and client support with Orient Futures Singapore, a subsidiary of Shanghai Orient Futures Co., Ltd. and Orient Securities Co., Ltd. OFS holds a Capital Market Services license awarded by the Monetary Authority of Singapore, with memberships in the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and Intercontinental Exchange Singapore (ICE SG).
When you are trading with Orient Futures Singapore, you can be guaranteed:
- Transparent fee structure
- Secured, segregated funds in regulated banks
- No paperwork
- 100% online registration, funding, and trading
- 24-hour client support on trading days
- Access to markets in China and beyond
Despite the volatile futures and commodity markets caused by geopolitical tensions, you can be sure that trading with Orient Futures Singapore can help you on your path to success.
At Orient Futures Singapore, we provide forex traders with access to trade in different currencies, we also offer futures commodity that can be traded in the Chinese exchanges.
Start Trading With Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG).
We provide premium customer service at an affordable cost to all our clients. Our team will be there for you 24 hours on trading days to provide a one-stop portal for all your trades, with simple processes and an intuitive user interface that has low or near-to-zero latency.
